How to Get Pre Approved for a Car Loan
Check your credit report for errors or inaccuracies., Make certain you meet minimum auto lending requirements., Shop rates at local banks and credit unions., Take your "blank check" to the dealership., Compare your pre-approved rate to what the...
Step-by-Step Guide
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Step 1: Check your credit report for errors or inaccuracies.
The FTC has found that 26% of consumers have at least one error on their credit reports, and 5% have errors that lead them to either be denied credit or pay higher rates of interest on financial products like auto loans.
For this reason, it is important to request your credit report, check it for errors, and dispute any errors you find. The FTC has found that in about 50% of cases, this leads to an increase in one's credit score. -
Step 2: Make certain you meet minimum auto lending requirements.
Most banks, credit unions, and other lenders that pre-approve borrowers for financing require a minimum monthly pre-tax income of $1500, as well as a debt-to-income ratio (DTI) of 45% or less.
You may not be able to boost your income in the short term, but you can improve your DTI by paying off credit card debts and the like. , The various credit scoring models now take into account the practice of "rate-shopping," meaning the submission of multiple applications for the same type of loan in order to compare interest rates from various lenders.
Depending on the scoring model being utilized, multiple credit inquiries within a 14-45 day period are only counted as a single inquiry.
Typically it is best to start with a bank or credit union with whom you have an existing relationship, then compare the rates offered with other lenders in your area.
If you have a credit score of 680 or lower, you may need to consider alternative lenders that fund subprime auto loans. , Since you have not yet picked out the specific vehicle you want, many lenders will give you a "blank check" to bring to the dealer lot.
In reality, this document pre-approves you up to specific, predetermined loan amount.
Also, your vehicle will, most likely, need to meet specific guidelines in terms of age and mileage.
For some major lenders, the limits are 7 years or 70,000 miles. Once you choose your vehicle, you give your "blank check" to the dealer, and they finalize the lending arrangements with your bank, credit union, or finance company. , Just because you were able to arrange your loan ahead of time doesn't guarantee that you were offered the very best rate.
This is particularly true if you have very good credit, as many dealers work with "captive" finance companies that offer special low rate or even 0% financing.
There is no harm in seeing what APR rate the dealer can offer you through its own network of lenders, as long as you keep in mind any added down payment requirements. , All reputable auto lenders now require consumers to carry a full coverage insurance policy on the financed vehicle.
This ensures that the at least part of the loan balance will be recouped in the event of an at-fault accident that totals the vehicle.
If you provided a down payment of less than 20%, giving you a high loan-to-value ratio (LTV), you may also be required to carry GAP (Guaranteed Auto Protection) insurance.
This covers the difference between the amount the vehicle is worth as an insurance loss and the remaining balance on the loan. , This is the fun part! With all of the paperwork handled, you can drive your vehicle home.
Keep in mind that your bank or lender will have a lien on the vehicle's title until it is paid off, but the car is now, effectively, yours! -
Step 3: Shop rates at local banks and credit unions.
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Step 4: Take your "blank check" to the dealership.
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Step 5: Compare your pre-approved rate to what the dealer F&I offers.
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Step 6: Make certain you have full coverage insurance.
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Step 7: Drive your new car home.
Detailed Guide
The FTC has found that 26% of consumers have at least one error on their credit reports, and 5% have errors that lead them to either be denied credit or pay higher rates of interest on financial products like auto loans.
For this reason, it is important to request your credit report, check it for errors, and dispute any errors you find. The FTC has found that in about 50% of cases, this leads to an increase in one's credit score.
Most banks, credit unions, and other lenders that pre-approve borrowers for financing require a minimum monthly pre-tax income of $1500, as well as a debt-to-income ratio (DTI) of 45% or less.
You may not be able to boost your income in the short term, but you can improve your DTI by paying off credit card debts and the like. , The various credit scoring models now take into account the practice of "rate-shopping," meaning the submission of multiple applications for the same type of loan in order to compare interest rates from various lenders.
Depending on the scoring model being utilized, multiple credit inquiries within a 14-45 day period are only counted as a single inquiry.
Typically it is best to start with a bank or credit union with whom you have an existing relationship, then compare the rates offered with other lenders in your area.
If you have a credit score of 680 or lower, you may need to consider alternative lenders that fund subprime auto loans. , Since you have not yet picked out the specific vehicle you want, many lenders will give you a "blank check" to bring to the dealer lot.
In reality, this document pre-approves you up to specific, predetermined loan amount.
Also, your vehicle will, most likely, need to meet specific guidelines in terms of age and mileage.
For some major lenders, the limits are 7 years or 70,000 miles. Once you choose your vehicle, you give your "blank check" to the dealer, and they finalize the lending arrangements with your bank, credit union, or finance company. , Just because you were able to arrange your loan ahead of time doesn't guarantee that you were offered the very best rate.
This is particularly true if you have very good credit, as many dealers work with "captive" finance companies that offer special low rate or even 0% financing.
There is no harm in seeing what APR rate the dealer can offer you through its own network of lenders, as long as you keep in mind any added down payment requirements. , All reputable auto lenders now require consumers to carry a full coverage insurance policy on the financed vehicle.
This ensures that the at least part of the loan balance will be recouped in the event of an at-fault accident that totals the vehicle.
If you provided a down payment of less than 20%, giving you a high loan-to-value ratio (LTV), you may also be required to carry GAP (Guaranteed Auto Protection) insurance.
This covers the difference between the amount the vehicle is worth as an insurance loss and the remaining balance on the loan. , This is the fun part! With all of the paperwork handled, you can drive your vehicle home.
Keep in mind that your bank or lender will have a lien on the vehicle's title until it is paid off, but the car is now, effectively, yours!
About the Author
Megan Campbell
A passionate writer with expertise in lifestyle topics. Loves sharing practical knowledge.
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